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You are offered a choice of two possible investments, both have similar risk and maturity, but one is a municipal bond with a tax-exempt yield of...

You are offered a choice of two possible investments, both have similar risk and maturity, but one is a municipal bond with a tax-exempt yield of 2.45% and the other is taxable bond with a yield of 4.15%. Your marginal income tax rate is 40%. Which of the following statements is most correct?


  • A. Invest in the municipal bond because it has a taxable equivalent yield of 4.083%
  •  B. Invest in the taxable bond because it has an after-tax yield of 1.66%
  •  C. Invest in the municipal bond because it has a taxable equivalent yield of 6.125%
  •  D. Invest in the taxable bond because it has an after-tax yield of 2.49%

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  D. Invest in the taxable... View the full answer

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D. Invest in the taxable... View the full answer

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